Amazon has yanked books from publisher Macmillan in a dispute over e-book …

The rise of digital media has led to many a battle between the old guard—record labels, television networks, movie studios, and book publishers—and the companies that sell their wares to the public. The latest skirmish between the two erupted over the weekend when Amazon temporarily stopped selling all books published by Macmillan, telling customers only that they were available through third parties. Amazon has since announced that it will go along with Macmillan's revised price plan, saying that it has little choice in the matter.

On Thursday, Macmillan CEO John Sargent met with Amazon representatives to discuss the pricing of the publisher's titles on the Kindle e-book reader. Negotiations didn't go so well, with Sargent wanting to exercise absolute control over the prices of e-books sold through Amazon. According to the New York Times' sources, Macmillan wanted Amazon to raise prices from $9.99 to $15.

Since launching the Kindle, Amazon has kept the price of best-sellers steady at $9.99, reportedly taking a loss on each title in order to make content for its e-book reader more attractive and drive hardware sales. That hasn't gone over too well with some publishers, but the dispute with Macmillan is the first one to carry over from the boardroom into public.

In an advertisement (via Silicon Alley Insider) that ran Saturday in Publishers Lunch, Sargent gave his company's side of the story. He says that Macmillan would make less money under a new distribution model that it will be using with other retailers (including Apple) beginning in March. Called the agency model, it has Amazon and other retailers taking a 30 percent commission on all sales, but with the publisher setting the price on each title. New releases would retail for between $12.99 and $14.99, while older titles would be as cheap as $5.99. Amazon would prefer to go with a one-price-fits-all model.

If this scenario sounds familiar, it's because it is similar to the one that played out in the online music market over the past few years. With the lion's share of the digital music market, Apple was able to insist on a per-song price of 99¢ over the protestations of the Big Four labels, who wanted the freedom to charge as much as $1.29 for new releases. Apple eventually relented and the iTunes Store now has variable pricing.

Apple is lurking in the background of the current dispute. Here, it is playing the part of the newcomer taking on an established incumbent. The iPad, announced last week, is a major play by Apple for the e-book market, and Apple is luring publishers—including Macmillan, a launch partner—with the same variable pricing it once eschewed for music. Amazon is fighting for the status quo, a more consumer-friendly price of $9.99 for books that are locked into its DRMed hardware platform. Macmillan's CEO argues that his preferred pricing model encourages "healthy competition" and would lead to the "long-term viability and stability" of the e-book market.

What he fails to mention is that Macmillan is also free to continue charging Amazon whatever it likes for a product that costs less to produce and distribute than the dead-tree models. If Amazon wants to take a loss on each e-book for its own reasons, that should be its choice to make.

Under Macmillan's model, every e-book will cost the same at each retailer. So we will have to make our buying decisions based solely on which hardware-software vertical we want to be locked into, rather than how much each book will cost us. Instead of having the choice of reading The Politican on their Kindles for $9.99, on an iPad for $12.99, or in hardcover for $14.99, we'd have one price for every e-book vendor—Apple, Amazon, or Barnes & Noble.

However the battle between Macmillan and Amazon turns out (update: a reader in the discussion thread pointed to a post on the Kindle discussion forum that indicates Amazon will eventually give in to Macmillan's terms), it serves as another reminder of old media's desire to pocket as much of the digital-distribution savings as possible, rather than pass them on to consumers.

Eric Bangeman
Eric has been using personal computers since 1980 and writing about them at Ars Technica since 2003, where he currently serves as Managing Editor. Twitter@ericbangeman

This is the best article written today on this topic. Apple is literally upsetting the apple cart on the ebook pricing that Amazon already had established. In 2009 many companies were moving towards "green" actions, here we have one who is greedy and actually encouraging people to buy the dead-tree version that needs to be warehoused and shipped to the consumer. If they are going to make less money with their "agency" model then why are they forcing Amazon into it? Their option to Amazon is to keep the same deal and get the book 7 months later. That sounds reasonable, and so does the new 50/50 at 80/20. Doesn't make sense to me. Funny how price-fixing is generally considered an Antitrust issue but companies will do it at the first chance they get.

Apple isn't upsetting anything. They are forgetting that the reason for their success in the e-music market was keeping prices down.

Who is going to buy books through iPad -knowing- that prices are cheaper at Amazon?

The book publishers are used to handling physical books, and therefore controlling distribution. They don't control the manufacturing or distribution of e-books. It is going to take a large loss of profit for them to realize that they aren't holding all the cards anymore.

Kudos to Amazon for finally realizing that they are holding all the cards and can call the shots.

This article might need a little more even handed approach. From author Charlie Stross' viewpoint (http://www.antipope.org/charlie/blog-static/2010/01/amazon-macmillan-an-outsiders.html), Amazon is the bad guy in this. According to him, Amazon is taking 70% of the profits from an electronic book under the old pricing model - by acting as both the distributor and retailer. Under the new model, which appears to be targeted toward heading off Apple's entry to the market, Amazon drops their percentage down to 30%. But they require any one using that model to agree to some conditions. In Charlie's words:

"to get the 30% rate, you have to agree that Amazon is a publisher, license your rights to Amazon to publish through the Kindle platform, guarantee that you will not allow other ebook editions to sell for less than the Kindle price, and let Amazon set that price, with a ceiling of $9.99. In other words, Amazon choose how much to pay you, while using your books to undercut any possible rivals (including the paper editions you still sell)."

Shame on who???? Did the Consumer have ANY say in this? NO, none as the hardware isnt even available. Then who are the players and who decided what? Apple is the one who agree to have their consumers pay higher prices. At what point will the consumer realize that their hardware supplier is actually the one screwwing them?

Of course the publisher is going to go with the company who agrees to pay more. Its Apple that took the road to cater to the publisher and ignore the consumer. Go figure.

I find it somewhat amusing, as Amazon likely will have to stop this practice anyway. They already are putting their Kindle software on platforms that aren't the Kindle, and the iPad is no exception (assuming the Kindle app for the iPhone works on the iPad). As such, there is no way that there is long-term viability for Amazon to continue to price books at a loss when they are very likely going to end up as a software e-reader platform more than a total package.

As such, I find this argument silly, as Amazon has conceptually already given up on this model.

ok, so we have at least 1 ebook standard. An Ebook means that I "should" be able to purchase anywhere and load it into whatever device I want to read it from. This means that I can buy directly from Baen (www.webscription.net) or any other publisher who chooses to put up a website to sell books. No longer do I need Amazon, Barnes and noble, Chapters, etc to get a book from.

What I really need is an agnostic platform that allows me to read ebooks, back them up and not get stuck into someones proprietary format, software, ebook type, etc.

The cost to publish an ebook is minimal as this process needs to be done anyway to get a manuscript into dead tree format anyway. So if a publisher is going to print a book, any digital sales are fluffy icing on the top of the cake.

Enough with the "but ebooks are cheaper!" angle, people. Distribution and printing are a small part of a publisher's expenses; there are high fixed costs which must be made up somehow. Pricing well above marginal cost is necessary.

I agree that MacMillian shouldn't be trying to control the downstream price of books. The ideal situation is for publishers to demand a flat fee per ebook. Retailers can then price as they wish, making money or taking a loss, whatever. Retailer relationships are always more complicated than this, of course: thus "recommended retail prices." But still, that's the ideal for a well-functioning market.

Still, to portray Amazon as the good guy here is silly.

Amazon is trying to leverage its dominance in one market, physical books, to gain a ridiculous amount of control over the ebook market. That's bad enough.

Amazon's attempt to categorize itself as a "publisher" of ebooks rather than a retailer is sinister. They're not publishing jack.

It's not like Amazon is just trying to keep book prices down for little old consumers. They want to lock publishers into most-favored-nation contracts which forbid publishers allowing Amazon ebook prices to be "undercut." This is insane--other ebook seller's contracts might be structured differently, allowing for prices that are lower in some instances and higher in others. It's hard to see how this kind of control by Amazon, a middleman, over every step of the distribution can be good. Focusing on the 9.99 vs. 15.00 angle makes it seem like reducing competition and flexibility among retailers is somehow good for competition.

@kinkajou - nice info, thanks. Kind of funny that Amazon only mentions higher pricing, when MacMillan's stated preference is to offer older titles for a lower price than even the current $9.99 Amazon price.

Bottom line, every publisher is going to want the different terms, and would ultimately freeze Amazon out. Amazon had nothing to gain from this little stunt. They could have signed on 3 days ago, and made their message "yes, higher prices on new releases, but lower prices on most of the catalog". Now they just look silly.

You're absolutely right, Charles' article gives a rather one sided account of the affair. He claims Macmillan's goal is to make prices cheaper to the consumer, without explaining how that works at $14.99 vs Amazon's $9.99 ceiling. He also completely ignores other stupid publisher controlled limits like disabling text to speech (which is another money grab, if you were wondering).

So long as books are locked in DRM, the only person who clearly loses in any circumstance is the end customer.

Originally posted by Alan H.:@kinkajou - nice info, thanks. Kind of funny that Amazon only mentions higher pricing, when MacMillan's stated preference is to offer older titles for a lower price than even the current $9.99 Amazon price.

... which sounds exactly like the variable pricing model the music publishers were touting when asking to increase music prices from $0.99 to $1.29 at the iTunes store. I don't remember what the lower price was supposed to be, and I can't find evidence of it looking at random old crap in the store.

Books should be priced the good old fashion way: Let the market decide.

Some books, such as textbooks and medical books, take a lot of work to create. The paper they are printed on is a small component of the cost. The cost is the time placed into it. Since the market for these books is small, they are priced accordingly - expensively. One psychology book for example costs $100. Obvously, it should not ever be sold on the mass-market like books on Kindle. It would be a loss for all the time spent creating it. Also, the book has a value - it is a reference book for classes in psychology. It is not a throw away like some fiction book. So what should it be priced? Exactly, $100.

Books have an intrinsic value that can't be squeezed into an all-you-can-eat menu. Sorry, but $9.99 for every book does not reflect the work that went into it. Let the market decide. This means let the publishers decide the price. If it doesn't sell, they can always lower the price. But don't cheat the author out of income by lowering the price artificially before the public decides its worth.

The whole way the system works is ridiculous. Who gives a shit what Amazon's cut is or whether Apple entered the ring? Publishers should sell each license to Amazon, Apple, or any other retailer for a certain price, $x. The retailer should then tack on its markup and charge the customer $(x + markup). That's it—no negotiations, no special deals, no bullshit.

........... it would be better if this worked off a a flat cut off the sell price, the seller gets 30% of each sale nothing less nothing more.

Hell we all would be better of if the monopolistic zombisaurus just up and died and everyone adopted it to allow almost anyone to sell via electronic means at 30% cut(each sell is noted electronically and goes right to the publisher/CP owner then every few days the seller gets there 30% cut of the sale ), let each business set the price they want the market will do the rest all the while the CP owners rake in all that revenue. To balance it add that if you do not follow the set rules you will be fined 1000 times the price of each item you have abused or worse yet face illicit distribution charges.

No fuss no muss no need for extra lawyers and accounts to much things up....

Originally posted by newwb:The whole way the system works is ridiculous. Who gives a shit what Amazon's cut is or whether Apple entered the ring? Publishers should sell each license to Amazon, Apple, or any other retailer for a certain price, $x. The retailer should then tack on its markup and charge the customer $(x + markup). That's it—no negotiations, no special deals, no bullshit.

I agree the publishers should just worry about getting $X per sale and not worry about what the retailer is selling.

But, they should be free to sell their books to retailers at whatever wholesale price they please. I think the possibility of cutting flexible deals, and encouraging multiple retail outlets, outweighs the possibility that they might choose to squeeze out a retailer they're mad at. (If they act in concert, that would be an antitrust violation anyway.)

I think what the author misses is that, while both parties are in the wrong for trying to control downstream prices (Macmillan for snooping into Amazon's retail prices, Amazon for its MFN provisions), Amazon comes out looking much worse. It's attempting to use a market it came to dominate on the merits, physical books, to exact an unwholesome level of control on a new market--just as plausible competitors are emerging.

Also, an "agent model," though flawed, is better for the ecosystem than a "you get a cut of whatever price we choose to sell for." Amazon's preferred model doesn't take into account the fact that books are expensive to edit and produce. (Again, printing costs are not high, so eliminating them doesn't matter all that much.)

Everyone realized how dumb music was to become too heavily reliant on Apple. Publishers don't want another middleman to have them by the balls. But somehow, they're the bad guys. Very often they are. But in moving to thwart Amazon's dominance, I don't think they are.

Originally posted by ZippyDSMlee:........... it would be better if this worked off a a flat cut off the sell price, the seller gets 30% of each sale nothing less nothing more.

Hell we all would be better of if the monopolistic zombisaurus just up and died and everyone adopted it to allow almost anyone to sell via electronic means at 30% cut(each sell is noted electronically and goes right to the publisher/CP owner then every few days the seller gets there 30% cut of the sale ), let each business set the price they want the market will do the rest all the while the CP owners rake in all that revenue. To balance it add that if you do not follow the set rules you will be fined 1000 times the price of each item you have abused or worse yet face illicit distribution charges.

No fuss no muss no need for extra lawyers and accounts to much things up....

The authors/publishers should not be dictating end-user price or markup to retailers. Let Walmart charge 20% markup but with minimal value added and a shitty web site, and let Amazon charge 40% with a better store, authorized re-downloads in case of data loss, and other value-added features.

Originally posted by yesno:Enough with the "but ebooks are cheaper!" angle, people. Distribution and printing are a small part of a publisher's expenses; there are high fixed costs which must be made up somehow. Pricing well above marginal cost is necessary.

What bullshit. It's easier than ever to publish a book, you don't need to commit to a set number of copies printed, but most of all the publishers don't have to give a flying fuck about losses to used books. that right there should cut the price in half, and until it does we aren't buying.

The whole way the system works is ridiculous. Who gives a shit what Amazon's cut is or whether Apple entered the ring? Publishers should sell each license to Amazon, Apple, or any other retailer for a certain price, $x. The retailer should then tack on its markup and charge the customer $(x + markup). That's it—no negotiations, no special deals, no bullshit.

You can thank the DRM for the bullshit. Each retailer has their own DRM walled garden, which means that every sale of a reader is prospectively a very large number of book sales, so they have an abnormally large incentive to get people to buy their readers. One of the best ways to do that is to have lower priced books for your reader than the other guy, which means the retailers go into price competition on books. Then they all start to pressure the publishers to lower wholesale prices so they don't have to take a loss on each unit sold while they try to build their installed base.

The publishers are apparently trying to stop that by demanding that all the retailers charge the same amount, so that they can't compete with each other on price. The result is going to be that you don't ultimately get an iPod-style monopoly on readers, but potentially end up with something worse instead: It allows the publishers to squeeze any of the retailers if they start doing too well, by raising that retailer's wholesale price without allowing it to change the retail price.

That makes the retailers tend to stop innovating for two reasons: First, their existing customers are locked in because if they switch to the other retailer they lose all their books, so they don't have to compete. Second, because they realize that innovating won't allow them to increase their market share because the publishers have them by the balls and want them to stay the same size in comparison to their competitors so that the publishers don't have to contend with a monopoly retailer.

Meanwhile book prices are high because the publishers are engaged in price fixing and the retailers aren't allowed to lower them. DRM sucks.

Yes. Every time they download a book into Kindle, they've created a book.

quote:

Originally posted by yesno:Enough with the "but ebooks are cheaper!" angle, people. Distribution and printing are a small part of a publisher's expenses; there are high fixed costs which must be made up somehow. Pricing well above marginal cost is necessary.

That makes no sense at all. If I publish an e-book, should I charge $2 more so that extra money can be sent to book publishers for their outdated and irrelevant (to the e-book) distribution and printing costs?

The book manufacturing and distributing divisions should be able to support themselves. E-books don't use them so their costs shouldn't be passed onto e-book customers. Should cell phone calls include the cost of keeping a telegram or even a pony-express system up and running?

...unless you are just talking about the editing, marketing, and sales costs. But I'm guessing that most of the cost of the book is just pure profit. The book publishers had control of the distribution, so they took this profit for themselves. With e-books, they don't have this control, and companies like Amazon know this.

Originally posted by JamesKatt:Some books, such as textbooks and medical books, take a lot of work to create. The paper they are printed on is a small component of the cost. The cost is the time placed into it. Since the market for these books is small, they are priced accordingly - expensively. One psychology book for example costs $100. Obvously, it should not ever be sold on the mass-market like books on Kindle. It would be a loss for all the time spent creating it. Also, the book has a value - it is a reference book for classes in psychology. It is not a throw away like some fiction book. So what should it be priced? Exactly, $100.

While I agree that some books take more effort and are "worth" more than others I don't think you picked the best example. Have you ever heard of an "International Edition" textbook? If you haven't I suggest you look it up. For those who don't know what I'm talking about, an international edition of a textbook can normally be bought for 50% or less than the price of a normal edition. Normally the content is completely identical just in a slightly different packaging (soft cover normally).

If the majority of the cost of distributing a textbook really was so small and the publishers / authors are primarily making up fixed costs with the high prices how is it they are willing to publish the same content in cheaper packaging and significantly reduce the price? The truth of the matter is that textbooks are $100+ because most students will buy them at their local university bookstore for full cover price and the customer doesn't have the option of going to a different book (if you're assigned problems out of the text, you need the text to complete the class). The instructor or department get to decide which text anywhere between a handful and 700+ students are expected to buy and most students are too ignorant or lazy to seek out alternative ways to acquire the appropriate text (it also doesn't help if the instructor provides less than a week to acquire the said textbook).

As a side note, people have been commenting on the iPad having Apple's DRM. Truth is, no one knows whether the iPad has DRM for books, it's just speculation. So far none of the ePub readers have DRM, except Adobe's, so who knows. But I sure hope Apple demands DRM-free ePub files, like they did for music

Also, if Stanza can support Amazon Kindle and ePub among other various possible eBook files, it's a simple case for Apple to support it. Imagine if you could import your Amazon Kindle books into iBooks...

EDIT: Nevermind, I just saw that Lexcycle (developer of Stanza) was bought by Amazon, so it makes sense why it supports Kindle files.

I don't buy ebooks but I have the impression that they always cost $10 or more. I can understand $10 for a new hardcover that costs $25, but $10 as a flat rate for ebooks won't get any sales from me. I'm not trying to rebel with that statement, it's just that I can buy a paper back for $11 at most and often for less than $10.

People ought to be able to resell books as well. If the publisher is getting $8 (for example) for each new book sold, there needs to be an agreement where people can sell their books such that a minimum price (say $4) goes to the publisher and the seller getting whatever is left over. Publisher's still get paid on used books, people can recoup a couple bucks from a sold book, and most importantly, this extra money would be used to buy more new books.

Actually, there are a TON of costs for the publisher other than printing and shipping, which if I remember right accounts for 10% - 20% of their costs.

Off the top of my head: editing. This is a much bigger and more involved process then most people realize. Typesetting, now with more formats to support than the hardbound and softbound editions. Cover art. Paying the authors royalties, and maybe even advances. Reading every manuscript that comes across their desks. Marketing - a HUGE cost.

Eating the cost of all the shipped and unsold paperbacks. This is sort of an obscure area of publishing that I'm not that familiar with, but if you send inventory to the bookstore, and the bookstore doesn't sell it, then the publisher usually ends up eating the cost, the cover is ripped off the book, and the book is tossed in the trash. I don't know if a similar thing would be done with e-books - where the retailer buys X amount and is refunded if it doesn't sell, or if it's a more sane model and they just pay for what they send out the door. Contracts with all the various authors, bookstores, and especially the mega-retailers.

Also, most work is speculative. If you're a new author instead of a Stephen King or J.K. Rowling, then the publisher is taking a bet on your book when they publish it.

The sad thing is now, everything is about shifting the same product across multiple locked down platforms. First came the inability to transfer DVD's legally onto a different device (like a MP3 player) to watch as you see fit. Now comes 3 different e-reader formats and companies. I guess that's why I prefer the dead tree variant. I can still find books from 100+ years ago in the dead tree format and read them or share with friends. I like being able to move media I paid for to different devices so I can use it as I see fit. If it turns out I'm just paying for a license for ANY of this stuff and to limit back up copies or transferrence, I want them to hold some responsibility if the media fails. The e-reader revolution can pass me by as I will stay with my paper formats. These have stayed as a stable form of reading materials for centuries. They will last after the kindle's battery fails, the iPad's backlighting fails, and the Nook fails.

Yes, that's something I regret seeing as well. I seriously considered purchasing an e-book as the idea of the format appeals to me; however, I HATE DRM, and I'd hate to purchase $1000's of dollars worth of books and find out that I bought the beta-max format.

I can certainly understand publishers' fears about piracy, and it's definitely out there in great gobs, but I also honestly believe that if publishers produce something with no DRM at a reasonable price and a convenient format, I believe people will purchase from them in droves, at least in the "western" countries.

In poorer countries, especially if the populace is even remotely tech savvy, then I believe the price has to be comparable to what the black market sells things for if the publisher is going to make anything. Unfortunately I don't think they'd be able to make worthwhile profits if they sold to everybody at that price.

I hate the idea of purchasing something for potentially many times what somebody else is paying, but I honestly think in this case stores that track IP addresses and don't allow people from all over the world to purchase from them are probably the least of the evils here.

Still no DRM, and probably with the idea that they're not legally transferable back to the western world. Or maybe you can, but it has a high tariff, keeping that idea of being able to resell your work, but without killing the market you're making some money in. Or something. It's a complex issue and I haven't seen a good answer. The western world can subsidize the poorer markets and still allow the publishers to get something from them, rather than wholly losing out to pirates, both physical and on-line.

I think in the long run having legitimate ways for everybody to purchase things, and more or less at the same time, but at regional prices, is going to be important. I also think that either no DRM, or at worst, a common DRM scheme is also going to be important. We'll see. The worst thing for we people is what's shaping up today: every e-book manufacturer creates their own format and has their own DRM scheme that's not transferable to other like devices.

I think for this to work well, and long term, I will need to be able to transfer my library from my Kindle, to the new Sony e-reader, to the Nook, etc. Getting this to work properly, and making sure that I'm selling just a used e-reader and not the e-reader plus a whopping huge library? Tricky.

Originally posted by ZippyDSMlee:........... it would be better if this worked off a a flat cut off the sell price, the seller gets 30% of each sale nothing less nothing more.

Hell we all would be better of if the monopolistic zombisaurus just up and died and everyone adopted it to allow almost anyone to sell via electronic means at 30% cut(each sell is noted electronically and goes right to the publisher/CP owner then every few days the seller gets there 30% cut of the sale ), let each business set the price they want the market will do the rest all the while the CP owners rake in all that revenue. To balance it add that if you do not follow the set rules you will be fined 1000 times the price of each item you have abused or worse yet face illicit distribution charges.

No fuss no muss no need for extra lawyers and accounts to much things up....

The authors/publishers should not be dictating end-user price or markup to retailers. Let Walmart charge 20% markup but with minimal value added and a shitty web site, and let Amazon charge 40% with a better store, authorized re-downloads in case of data loss, and other value-added features.

Thats what I meant, the CP owner gets a 60% cut th final sale price and the retailer can set whatever final sale price they want. Whoever can stay in the retail business "wins" while the CP owner makes money regardless.

Also no DRM its not needed as you have a winder market for stuff to be sold on you make money from dozens upon dozens of sales not 2 or 3 larger ones.

If printing and material costs are really such a small part of the cost of a book, then I find it strange that hardcover books are often twice as expensive as paperbacks.

I realize they are charging a premium because they can, and because the paperback is usually released later, but it doesn't really help their argument now that things are turning digital and people are looking at very expensive hardcovers, cheaper softcovers and wondering why a book with no cover at all isn't half the cost of the softcover...

Also, I know that they have large fixed costs, but that doesn't really help me feel better about paying the same for a relatively ephemeral product like an ebook.My preferred product would actually be a bundle with a paperback AND ebook for a slightly higher price than the paperback. That way I get an actual product I can put on a shelf in my library, AND the convenience of the ebook that I can carry around on my reader. The price should only be higher than the paperback version by as much as the distribution of the ebook costs the publisher. I could even live with fairly harsh DRM on the ebook to prevent reselling the ebook and getting the paperback "free".

Of course that will never really happen - the publishing industry still thinks they can get people to buy multiple formats of the same content. Why RIAA and MPAA haven't proven that largely doesn't work I don't know.